Europe’s crisis is now poised at the moment thatdivides recovery and renewal from declineand death. Whereas a few weeks ago, commentatorsand financial analysts argued that only a few months remained to rescue Europe, leading politicians, lurchingfrom summit to summit, have recently talked in terms of days.

Summer crises are a familiar feature of European history – and offinancial history. Indeed, the twentieth century was shaped by three summercrises, whose seriousness was heightened ineach case by the absence of major policymakers, who were on vacation.

In two years, Europeans will commemoratethe centennial of the assassination of Archduke Franz Ferdinand on June28, 1914, and the subsequent “July crisis” that triggered World War I thatAugust. On July 13, 1931, the German banking system collapsed, ensuring thatwhat was previously an American economic downturn became the worldwide GreatDepression. On August 15, 1971, President Richard M. Nixon ended the United States’commitment to a fixed gold price, leading to a decade of global currency instability.

Each of these crises involved a highly technical issue, but also a muchbroader set of political problems. And, in each case, the intertwining of the technical and the politicalproduced disaster.

In July 1914, diplomats were trying todevise a solution that would permit the HabsburgEmpire to deal with the cross-border policeinvestigation that was inevitable after a terrorist attack. Political leaderswere thinking about national revival and assertion.

In 1931, the experts were preoccupied with the complexities posed by thecombination of reparations and war debtsarising out of World War I with large private-sector indebtedness.Populist political movements in many countries were still thinking aboutnational revival and assertion.

In 1971, the technical issue concerned the role of the dollar in theinternational monetary system. But politicians in other countries also feltuncomfortable about the continuing centralityof the USin the postwar order.

In each of these summer crises, addressing the technical issue was notenough to solve the problem. That is true today as well.

Indeed, Europe’s current crisis reflectsexactly the same mixture of elements, each requiring a different type ofsolution. On the one hand, a complex set of national fiscal crises andEurope-wide banking problems calls for a comprehensive and detailed rescueoperation. On the other hand, an underlying European governance problem – atboth the national level and that of supranationalEuropean Union institutions – has been intensifying since the early 1990’s.

What is now required to resolve the technical issue is some mechanism forassuming existing debt and preventing excessive borrowing in the future. In theUS,Alexander Hamilton famously negotiated the federal assumption of states’ debtin 1790, but many states behaved badly in the early nineteenth century, withmultiple bankruptcies, until they adopted laws or amendmentsto their constitutions requiring balanced budgets.

The EU needs some fiscal authority of its own if it is to make Europe’s economic and monetary union work. It is alreadya profound peculiarity that customs duties in acustoms union are still administered nationally.

Hamilton made federal customs houses the key element of hisproposal. A Europeanization of some part of value-added tax would be atremendous advance in combating the massive fraud that the existing systemnurtures. Labor mobility is also incomplete without a common pensions andbenefits system: under current arrangements, a worker who spends five years in France, five years in Greece,and five years in Germanyis left with a fragmented collection of small entitlements. The crisis hasalready increased the extent of such migration within Europe.

But any solution will be unacceptableunless it finds broad acceptance across Europe,in debtor and creditor countries alike. There is no reason why a constitutionalsolution that involves debt limitation should not command a large measure ofpublic acceptance, especially in debtor countries, which have experienced thepolitical and economic damage caused by previous profligategovernments.

What has produced the populist backlashis the spectacle of political authorities devising technically complicatedsolutions that lack credibility. Simply put, the experts need to stop treating Europe’s citizens as if they were stupid.

That is why Europe needs a longer-termconstitutional renewal, through new treaties, as much as it desperately needs a short-term fix. Working aroundexisting treaties just looks like more of the same old recipe– a denial of a massive problem that everyone sees. The public can be forgiven for chokingon this kind of stuff.

Consider the European crises that produced good outcomes. On June 16,1940, Winston Churchill proposed a Franco-British political union in theaftermath of the German invasion of France. A decade later, West GermanChancellor Konrad Adenauer proposed a Franco-German political union. That isthe kind of boldness that is now needed.

In the past, it was war, immense dislocation,and suffering that could weld nations. Is Europe’s current crisis severe and dislocating enough to generate an analogous effect? The more Europesuffers, the more its people will correctly perceive an incrementalist agenda for reform as nothing more than anexercise in futility.